The Green Market Transition
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The Green Market Transition

Carbon Taxes, Energy Subsidies and Smart Instrument Mixes

Edited by Stefan E. Weishaar, Larry Kreiser, Janet E. Milne, Hope Ashiabor and Michael Mehling

The Paris Agreement’s key objective is the strengthening of the global response to climate change by transitioning the world to an increasingly green economy. In this book, environmental tax and climate law experts examine carbon taxes energy subsidies, and support schemes for carbon and energy policies. Chapters reflect on the underlying policy dynamics and the constraints of various fiscal measures, and consider the harmonisation of smart instrument mixes.
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Chapter 9: Economic effects of reforming energy tax exemptions for the industry in Germany

Anett Großmann and Christian Lutz


This chapter reports results of the study “Approaches for further development of public finances” conducted by F…S, …ko-Institute and GWS for the German Federal Environmental Agency between 2014 and 2016. Currently, numerous exemptions from taxes, levies and fees reduce energy prices, particularly those of (energy-intensive) manufacturing industries to prevent negative effects on production and carbon leakage. Lower energy prices reduce incentives for energy efficiency as well as prices for energy intensively manufactured products. Within the project a practical and smart proposal for the reform and harmonisation of current exemptions has been developed. In the reform scenario, existing regulations are harmonised with a focus on the electricity tax and renewable energy sources act (EEG) levy. A 3-level rebate system considering the level of competition and energy intensity is proposed. Continued exemptions require efficiency measures and are granted as a reimbursement according to product benchmarks. A MIN and MAX scenario shows the full range of possible price changes according to the rebates. The reform impacts are calculated at industry level and for different user groups. Electricity price changes range from -1.35 €Cent/kWh for private households and the service sector to +5.2 €Cent/kWh for manufacturing industries. The macroeconomic model PANTA RHEI is used to evaluate the impacts on economy and environment. The economic core of the model consists of input-output tables, the system of national accounts and the labour market. The model also includes energy balances, energy prices plus emissions of greenhouse gases and other air pollutants. Energy price differences induced by the reform concept have been implemented in PANTA RHEI on industry level. It is assumed that additional revenue from environmental taxes is used to reduce labour costs and to improve the energy efficiency of the service sector likewise. All other exogenous variables (e. g. population) and model relations are the same in the reference and in the reform scenario. Differences in results can be interpreted as consequences of the reform. Results show slightly positive macroeconomic and environmental impacts of the reform. GDP, consumption and employment are higher in the reform scenario compared to business-as-usual. Greenhouse gas emissions, emissions of air pollutants and consumption of materials are lower. Some “double dividend” can be observed.

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